When videocache tries to install its files by default it attempts to 'chown' them to the 'squid' user on the machine. In your case, this user does not exist. Please modify setup.py (lines 33 and 35) to reflect the user which you run Squid under.

I guess you are using Debian or a derivative. In your case squid is run by user proxy and not squid (in Red Hat derivatives). So you need to change the user and group to proxy before attempting installation.